Massillon Setback Relevant To Comcast-NBC Universal Deal

The Federal Communications Commission's Nov. 18 ruling against Massillon Cable TV, a small cable operator in Ohio, provides further evidence that baseball-style commercial arbitration is not a viable remedy for smaller operators and that the agency needs to rethink how it crafts conditions in the Comcast-NBC Universal deal to ensure small operators and consumers are not harmed.

"Massillon -- the one and only smaller cable operator that took the chance that baseball-style arbitration could be an effective remedy -- invested $1 million in an FCC-designed process that was intended to remedy the harms of the News Corp.-DirecTV transaction. However, despite the fact that an independent arbitrator ruled in favor of Massillon three years ago and ordered News Corp. to pay Massillon's arbitration costs, the FCC last week struck down that decision and ruled in favor of News Corp., which now means significant new costs for Massillon and its customers," American Cable Association President and CEO Matthew M. Polka said.

Massillon sought arbitration against Fox Sports Net Ohio to seek a new rate for the regional sports network (RSN) after the network stopped carrying Cleveland Indians baseball games. The FCC said the terms and conditions of the News Corp-DirecTV merger order do not permit "the arbitration of disputes regarding the terms and conditions of ongoing carriage agreements." The FCC added, "the condition limits the arbitration remedy to disputes concerning new contracts, specifically, new contracts associated with a renewal of pre-existing rights after expiration of a previous contract, or new contracts associated with first-time requests for carriage."

The Massillon ruling highlights the fact that the baseball-style commercial arbitration process is slanted in favor of large programmers over smaller operators. Put simply, a large programmer like News Corp. or Comcast-NBCU has the incentive and substantial resources to ensure that the process is costly and unpredictable in an effort to dissuade budget-constrained smaller operators from ever considering arbitration a viable option.

In filings in the Comcast-NBCU proceeding prior to the Massillon decision, smaller operators had explained to the FCC that baseball-style commercial arbitration is both too expensive and chancy to pursue. They stated that they had little choice but to accept higher programming fees and pass these costs along to their customers, rather than engage in baseball-style commercial arbitration.

With respect to adopting conditions to ameliorate the substantial harms that would arise from the proposed Comcast-NBCU transaction, smaller operators have recommended that there be well-defined rules that prevent Comcast-NBCU from charging smaller operators more than a clearly defined market-based rate and that a cost-effective process be established to enforce these rules.

"Given the projected $2.4 billion in increased programming costs from the proposed combination of Comcast and NBCU, the FCC must craft well-designed remedies for smaller operators that limit with certainty the harm to consumers and competition. Otherwise, more decisions like Massillon will cost consumers literally millions of dollars," Polka said.